How Will Hurricane Harvey Impact Chesapeake Energy?

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How Will Hurricane Harvey Impact Chesapeake Energy? PART 1 OF 4

What Can We Expect of Chesapeake in the Wake of Harvey?

Chesapeake Energy stock

Chesapeake Energy (CHK) has been under pressure for most of the year, and the stock, mostly in response to weak energy prices (USO) (UNG), has fallen 47.4% YTD (year-to-date).

The Energy Select Sector SPDR ETF (XLE), by comparison, has fallen ~15.5% YTD, while the S&P 500 ETF SPDR ETF (SPY) has risen ~9.5%. Crude oil and natural gas prices have fallen ~9.3% and 13%, respectively, YTD.

What Can We Expect of Chesapeake in the Wake of Harvey?

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Hurricane Harvey: more pain for Chesapeake Energy?

Against a backdrop of a huge debt load—a principal debt balance of $9.7 billion at the end of 2Q17, with a market capitalization of $3.2 billion—Chesapeake Energy had been focusing on oil-targeted production growth this year. This growth was mostly expected to come in from CHK’s operations in the Eagle Ford and Powder River Basin.

However, Hurricane Harvey hit Texas and Louisiana in late August 2017 and took a toll on Gulf Coast refineries, idling production in regions such as the Eagle Ford and the Gulf of Mexico. Given CHK’s weak financial position, weakening stock price, and the volatile energy price environment, this was something the company didn’t need at this time.

CHK’s management

In its Barclays CEO Energy-Power 2017 Conference in September, CHK’s management noted: “We have been impacted by Hurricane Harvey to a pretty significant extent down there.”

While the company has not specified the degree to which the hurricane would impact the company’s production, CHK maintained that the impact would continue to be felt in the next few weeks.

CHK’s management also noted: “We expect to continue to be impacted across the next few weeks until we return to normal with our operations and get everything lined back up from not only our wells producing but also through the entire midstream and downstream chain.”

There’s thus a high possibility that CHK’s 3Q17 production in the Eagle Ford could be impacted. Investors will be watching the impact this could have on the company’s 3Q17 earnings and stock movements in coming months.


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